Shruti Vats[1]

1. INTRODUCTION

In light of the increasing complexity of commercial contracts and prevalence of multi-party and multi-contract arrangements in international business transactions, SIAC issued a proposal on Cross Institution Consolidation Protocol read with its 2016 SIAC Rules, in 2017. Multi-party and multi-contract disputes are not uncommon in international arbitration and also arise frequently in commercial litigation. According to the ICC’s statistics for 2016, no less than half of the arbitration requests filed with the ICC involved three or more parties, with 20% of arbitrations involving five parties or more.[2] Similarly, the figures from SIAC’s Annual Report 2019 note that 179 consolidation applications have been received by SIAC since the introduction of consolidation provisions in the SIAC Rules.

Consolidation is perhaps more important in arbitration than in litigation because the principles of res judicata and preclusion are not universally recognized in arbitration. While the rules of major arbitration institutions have provisions for the consolidation of multi-party and multi-contract proceedings pending before their own institutions, the field remains unkempt when it comes to arbitration proceedings spanning multiple institutions. Such Institutions have not yet introduced consolidation of arbitrations that are subject to rules of different institutions. If the contracts contain references to two different institutional rules of arbitration (for example, where the subject matters of the contracts are different and disputes arising out of them would benefit from the expertise of specialist institutions), the necessary result, within the present framework, is that two different arbitrations would need to be conducted under different rules,[3] possibly leading to conflicting decisions. This comes after the parties have spent double the resources and time. As explained further below, SIAC’s proposal addresses this by dealing with issues of consolidation of pending arbitrations as well as by providing for the possibility of commencing a single proceeding in relation to multiple contracts that refer to different institutional arbitration rules.

1. THE PROTOCOL[4]

The protocol succinctly lays down the key discussion points and their recommended solutions, with possible alternatives. Put simply, the proposal addresses the following two issues:

1. whether and how a consolidation application should be admitted (along with ancillary administrative issues); and
2. if the application is to be admitted, which Tribunal should decide upon the consolidated arbitration.

In assessing SIAC’s proposal, the key issue is not so much the substantive nature of the initiative or the proposed mechanics for cross-institution consolidation, but rather the question of the administrative ‘sovereignty’ of the international arbitration institutions.[5] In other words, the key issue is which institution should be given primacy over the other. 

SIAC’s proposal focuses on the objectives of arbitration – reducing time and costs involved in traditional methods of dispute resolution, and also on easy enforceability of the final decision. These objectives which make arbitration attractive as a method of dispute resolution are often neglected, as arbitration is, arguably, the only alternative with trans-national enforceability.

1. ISSUES IN MULTI-CONTRACT AND MULTI-PARTY DISPUTES AND THE EXTENT TO WHICH SIAC’S PROPOSAL MITIGATES THESE WEAKNESSES

1. Party Autonomy (consensual nature of arbitration agreement and concept of privity of contract): The introduction of claims or parties through consolidation or joinder serves the goal of finality of decision, yet is often not an option because the contractual nature of arbitration bars any party, in this case the original parties, from being forced to submit to a proceeding to which they did not agree originally in the contract.

This problem may be solved by all parties agreeing in advance upon the consolidation provision through the institutional rules, in turn containing the protocol. The Protocol, in this way, will be subject to the consent of the parties automatically, once the parties agree on an institution and its rules. However, for an initial period i.e. transition period, (not specified exactly in the protocol) opt-in mechanism will apply where parties will have to specifically opt for such a consolidation protocol so as not to be caught off guard in the later proceedings. The protocol does not violate the principle of party autonomy as it is only prospectively applicable i.e. the protocol will have no applicability to agreements dated prior to the date of the protocol.

• Appointment of Arbitrators: The consensual basis of arbitration is based on the principle of equality amongst the parties. Introduction of multiple parties to arbitration either as claimant or respondent can complicate compliance with this principle, particularly in the process of the selection of arbitrators. In most jurisdictions, especially in states party to the New York Convention, 1958, awards are vulnerable to challenge if all parties have not had an equal right to participate in the appointment of the tribunal[6] This problem, at present, is ostensibly dealt with by the common institutional arbitral rules by providing for the joint nomination/appointment of arbitrators together by all of the parties of one side (Claimants or Respondents). It does not specifically provide for situations where one side might be represented by more than one party with different claims (against the other side or even the same side).[7]This means that the arbitral rules commonly require that the parties agree to compromise on the expertise, cost etc. of the arbitrator in favour of a common name. 

In the light of the above issue, the protocol proposes the formulation of new rules for the consolidated proceedings that can be jointly administered by the institutions. In the alternative, it provides for the selection of one institution on the basis of objective criteria, safeguarding the overwhelming preference for an institution of the parties.

• Right of party to challenge tribunal’s jurisdiction after the consolidation decision: In a narrow sense, inclusion of new disputes (through a successful consolidation decision) results in the enlargement of the jurisdiction of the arbitral tribunal already formed for the purpose of deciding the first/original dispute. Should such tribunal be automatically deemed fit for the enlarged jurisdiction without having to further obtain the consent of parties?

This, however, is not an issue under the protocol as it innovatively establishes a joint committee for consolidation decision which takes into account an already constituted tribunal. The right of a party to challenge the tribunal’s jurisdiction after such a decision will be based on the nature of the decision; administrative or jurisdictional (a choice for the international institutions as per the protocol).

Furthermore, the heavy inclination in the protocol for providing reasons for the consolidation decision enlarges the basis for the parties or even institutions to rely upon, in case of future grievances. However, it is suggested that the protocol should itself lay down remedial action for the aggrieved parties where the parties can approach the institution in a form of appeal or revision on certain specified grounds of grave nature. Such a remedial action could act as a safety valve to the validity of the final decisions taken in such disputes.

• Confidentiality–With an increased number of parties to the proceeding, the likelihood of absolute confidentiality being observed diminishes. However, this is more of a natural consequence of complex transactions involving multiple parties. It is suggested that with an extended application of party autonomy principle, the parties can choose to sufficiently provide for the chain of privity of contract. The parties may in the agreement itself provide for the extent (in terms of dispute and/or number of parties) to which consolidation can take place in case such contingency arises.

1. CONCLUSION

It is not so much the endeavor to seek consolidation at the institutional level that should be debated, but the balance between the efficiencies achievable through consolidation on the one hand, and the need for an equitable and consensual process on the other, that warrants continuing dialogue between the international institutions.

The protocol is subject to high-end discussions and co-operation initiatives among the international arbitral institutions. The first of its kind will be the joint working group, to be formed under the MOU signed between SIAC and CIETAC, to bring into action at least the fundamental principle enveloping this protocol: deliberation between two international arbitration institutions. Additionally, at a very minimum, the protocol has successfully provided a digest of all issues that might administratively arise in multi-contract and multi-party arbitrations along with suggestions, evidently drawing on the expertise of internationally renowned arbitration institutions and experts. The efficacy of the protocol, thus, lies in the effective coverage of various issues in multi-contract and multi-party arbitrations. While the efficacy at the touchstone of immaculate and universal solutions to these issues lies in the pending coordinated efforts of the renowned arbitration institutions.

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[1] Advocate, New Delhi, India

[2] Furthermore, a figure of about 40% of arbitration cases worldwide is said to involve more than two parties (Nathalie Voser, Multi-party Disputes and Joinder of Third Parties, Series no. 14, 50 Years of the New York Convention – ICCA, Council for Commercial Arbitration Congress, Kluwer Law International, p. 343 (2009)).

[3]ICC Commission on Arbitration and ADR, Report on Financial institutions and arbitrations, p. 12 (2016),  lays down consolidation in complex transactions as one of the perceived limitations of arbitration with financial institutions expressing concern over the risk of finding themselves involved in several parallel albeit related proceedings. (https://cdn.iccwbo.org/content/uploads/sites/3/2016/11/icc-financial-institutions-and-international-arbitration-icc-arbitration-adr-commission-report.pdf)

[4]http://siac.org.sg/images/stories/press_release/2017/Memorandum%20on%20Cross-Institutional%20Consolidation%20(with%20%20annexes).pdf

[5] G. Born, International Commercial Arbitration, Kluwer Law International, p. 2091 (2009).

[6]Convention on the Recognition and Enforcement of Foreign Arbitral Awards, art. V(1)(d), June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 3 provides the composition of the arbitral authority or the arbitral procedure if not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place, as a ground on which recognition and enforcement of the arbitral award maybe refused.

[7]SIAC Rules, Rule 12 (6th Edition, 1 August 2016), Rules of Arbitration of the ICC, Article 12(6) (1 March, 2017), SCC Arbitration Rules, Article 17(5) (1 January 2017) and LCIA Rules, Article 8 (1 October, 2014) require nomination of arbitrators jointly by all claimants/respondents in case there are more than one claimant/respondent.